EFFECT OF MONETARY POLICY ON THE PERFORMANCE OF DEPOSIT MONEY BANKS IN NIGERIA

1987- 2017

Chinagorom Judith Aginam
Federal Polytechnic, Oko, Nigeria

Victoria O Obi-Nwosu
Nnamdi Azikiwe University, Awka

Keywords:
Monetary Policy, Deposit Money, Commercial Bank

Abstract

This study examined the effect of monetary policy on banks performance in Nigeria. Thevariables of monetary policy rate, liquidity ratio, broad money supply and interest rate wereregressed on return on equity (ROE) for the period of 30 years (1987- 2017). The study adoptedan ex-post facto research design because the data for the study are secondary data that alreadyexisted. Econometric techniques, including Augmented Dicker Fuller and Philip Perron tests forunit roots and Ordinary Least Square (OLS) were employed for the analysis. The result of thestudy indicate that monetary policy rate, liquidity ratio and broad money supply have positiveand significant effect on return on equity (ROE) while interest rate has negative andinsignificant effect on return on equity (ROE) within the period under review. The study thusconcludes that monetary policy can be used to influence the performance of deposit moneybanks in Nigeria. The study recommends that interest rate should be reduced to a single digit.Bank management should ensure that capital is properly channeled to the productive sector ofthe economy. The relevant monetary authorities should apply with caution monetary policyvariables to significantly influence commercial banks loans and advances. Expansionarymonetary policy should be adopted by the CBN to force down interest rate and increase moneysupply because a fall in the bank rate will reduce interest on loans made by commercial banks.This will encourage more customers to secure loans from their banks thereby, increasinginvestment opportunities in the country, ceteris paribus.